Saturday, March 21, 2009

Death of Need-Based Marketing

Peter Drucker got it right: "The customer rarely buy what the business thinks it sells him".

Most companies segment along lines defined by the characteristics of their product (category or price) or customers (age, gender, income level). But customer and product characteristics are poor indicators of customer's buying behavior, proven by the research work of Clayton Christensen,et al and published in the Harvard Business Review (Harvard Business Review on Innovation). And the current need-based segmentation and marketing is self-limiting at the best; in some cases, it could even mislead marketers in their quest to understand what customers "really" want.

Challenge is that "buyer needs" change far more often than marketers would acknowledge. These needs change and evolve continually - as a function of situations and surroundings (environment).

"Need-based marketing" does not explain why a guy takes out his girlfriend to a movie theater on one night but next evening, they order pizzas at home and watch movies on DVDs ordered from Netflix or picked from the nearby video store.

Another example: Say,you are rushing to get to work for that early morning meeting and you miss your breakfast. You then decide to grab a bite at a local coffee shop that's on your way to the office. However, a busy drive-thru at the coffee shop means that you could miss your meeting; so not taking a chance you decide to head straight to work. You are still hungry and a dairy shop near the office might be your best bet. This dairy shop has a quick drive-thru and they have recently started serving thick"fruity milkshakes" that are quite filling actually. And so you have just found your next best "alternative" to breakfast bun at the coffee shop. The new fruity flavored milkshake is healthier and filling at the same time. Add to this a faster drive-thru and customer service at the dairy shop, you have just "hired" milkshake over breakfast bun.

Customers don't buy products, they "hire" products to get a job done. Marketing guru, Ted Levitt, taught us 30 years ago that customers "don't want a quarter-inch drill. They want a quarter-hole!"
This concept was recently re-introduced by Clayton and others in Harvard Business Review. As illustrated in case of dairy shop example, you hire "milkshake" to feed your morning hunger in a healthier and filling manner. Not only that, choice of milkshake over breakfast bun at the coffee shop is reinforced by smaller line-up and faster drive-thru at the dairy shop. In fact, you don't need breakfast bun or milkshake, in fact what you need most is to feed yourself quickly to get you going till lunch. Milkshake and "Breakfast bun +coffee" are two alternatives to meet the same need. You choose the one that offers you the most value.

Products are just like "job candidates" hired by consumers to get a specific job done. The best candidate wins the job - product which can help consumer get a job done most efficiently and effectively will surely win.

We think of FedEx as the fastest parcel/courier service. When we think of BMW, we are reminded of high performance cars. Think of online auctions and eBay comes to mind. Best products position themselves as "purpose brands" (read this post). These products and brands are associated with a clear purpose and pop into customers' minds when they need to do the jobs that these products were optimized to do.

Marketers should think of this concept before rolling out new surveys, focus groups and forum discussions. It should be central to any customer-driven strategy. The key is to ask right questions. Ask the right questions and you'd unlock key information on the buying behavior of your customers.

Ask the "right" questions: The "right" question to ask in a survey is NOT what your customers want? Most of the times, they wouldn't know it either (historically, customersurveys are not very useful for ahead-of-the-curve technology products like walkman, iPODs and even PCs) and if customers know what they want, they would tell you and likely share a long list of feature enhancements for your product. But what they will never tell you is if they would also pay for the same. Unsuccessful product launches are testimony to this fact; after investing heavily in marketing research and surveys, companies launch products loaded with new features and technologies (that their customers asked for in those surveys) but dismal sales prove otherwise; customers do not value new functionality enough - at least not as much as to pay for it! These functionalities end up getting labelled as "bells and whistles".

Therefore, marketers should focus less on product-centric questions and more on customer-centric questions. By asking the right questions, marketers can unlock a wealth of information about customer buying behaviors.
  1. What your customers use your product for?
  2. What job are they trying to do?
  3. How do they use your product to get those jobs done?
  4. Is there a better way in which your product could help them perform customers perform their job better?
  5. What do they use as alternatives if they are not using your product?
These questions are key to unlocking buyer-value. Not only that responses to these questions would help in new product enhancements (#4) and finding new competition in alternatives (#5). It is valuable insight for any marketer and should help organization to develop best products and build successful brands.

I am not prophesying death of "Need-based marketing". It is a useful concept and has been put into good practice producing successful results over the decades. It tells us to focus on customer needs in order to win their business - that is and will remain an undeniable truth for years to come.

But as consumer choices increase and their needs change at any given moment, need based marketing in its current form proves static rather than dynamic to reflect that change.
Need-based marketing will cease to exist in its current form - as a snapshot in time of customer needs - assumption that buyer needs remain static over long periods of time. Need based marketing will face a certain death if it fails to capture varying customer needs and competing alternatives.

RECOMMENDED READING: For further reading, refer to following books.

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